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Subjective Survival Expectations and Annuitisation Decisions

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  • Tianyu Pang

    (University of Cambridge)

Abstract

This paper estimates a dynamic model of annuitisation in which individuals hold subjective survival beliefs that may differ from their actual mortality risk. I show that biased survival beliefs reduce annuitisation at retirement but generate additional annuity demand at older ages. Overall, individuals under-annuitise by 10.1% during retirement and delay the average age of annuitisation by 3.7 years relative to the objective benchmark. The average welfare loss resulting from biased survival beliefs is equivalent to 2.9% of retirement-age assets. About 31% of this loss is attributable to pessimism about survival, while the remaining 69% reflects misperceptions of how mortality risk increases with age. Counterfactual policy experiments suggest that subsidies for annuity purchases early in retirement financed by taxing later purchases would improve welfare. (Copyright: Elsevier)

Suggested Citation

  • Tianyu Pang, 2026. "Subjective Survival Expectations and Annuitisation Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 62, November.
    • Handle: RePEc:red:issued:25-26
    DOI: 10.1016/j.red.2026.101365
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    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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